Limited Investor Attention and Anchoring Bias: A Prediction of Market Collective Behavior

Document Type : applied

Authors

1 Department of Accounting, Bojnourd Branch, Isalmic Azad University, Bojnourd, Iran

2 Associate Prof. Accounting, Ferdowsi University of Mashhad, Mashhad, Iran

Abstract

This study employs the implication of psychological anchors and limited investor attention, as two behavioral biases used in the explanation of overreactions and under reactions, to investigate the ability of nearness to the Tehran Price Index (TEPIX) 52-week high and nearness to the TEPIX historical high to predict future aggregate market returns. Consistent with the literature, the results of our tests, using time series of daily and monthly returns of the market, suggest that individual traders as a whole under react to news as current index closes to the 52-week high and hence it is possible to forecast market returns over 1-month horizon. We also provide evidence that the nearness to the TEPIX historical high negatively predicts future market returns, showing an overreaction to news due to nearness to the historical high. 
JEL: G12, G14
How to cite this paper: Ghorbani, A., Salehi, m., & Abbaszadeh, m, r. (2016). Limited Investor Attention and Anchoring Bias: A Prediction of Market Collective Behavior. Quarterly Journal of Risk Modeling and Financial Engineering, 1(2), 206–224. (In Persian)

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Journal of Risk modeling and Financial Engineering
Volume 1, Issue 2 - Serial Number 2
December 2016
Pages 206-224

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